Overhead costs in dental practices have been on the rise for decades and are affecting the majority of dentists at every stage of their practice life. If you are early in practice ownership or are in the middle of your career, this may result in cash flow problems. Perhaps you can’t afford to sufficiently fund retirement, take enough (or any) vacation time, establish any sort of savings or prepare (be adequately prepared) for your children’s educational expenses. If you are an older dentist ready to retire, you may find you don’t have enough saved to live off of or be disheartened to find there isn’t a market for your practice because the practice income cannot support the income needs of a new purchaser.

This last scenario is very common and can occur because income needs of the retiring dentist are less than those of a prospective younger purchaser – the retiring dentist has already eliminated his educational debt, funded his retirement plan, finished raising children and paid for their educations as well. Not only will the younger purchaser probably be facing most if not all of these expenses, they also will have acquired debt service to purchase the practice, leaving the anticipated practice profit after the sale to be inadequate.

Where does the overhead problem lie?
Upon performing a true cash analysis as part of a practice valuation, we often discover one of the most significant contributing factors is staff costs that are excessively high, resulting in reduced profit. In 1980, there were approximately 1.3 dental assistants per dentist in the US labor force. In 2010, that number skyrocketed to over three dental assistants per dentist. Staggering increases also have been noted in the ratio of other (non-hygienist) personnel per dentist. See the graph below:

Therefore, no matter what stage of practice ownership you currently are in, it is essential that you examine the true cash flow of your practice. If staff (or any other) costs are out of line, make the necessary changes to correct this, in order to realize your full earning potential.
What are the necessary changes that will bring staff costs in control, without sacrificing the level of care and service provided?

Hire Right, Train Right
First and foremost, be sure to hire for excellence in order to prevent the need for over-staffing. You cannot compensate for a lack of qualified personnel by increasing the quantity of unqualified personnel. Although you will need to pay highly qualified personnel more than inadequately qualified personnel, they will more than make up for it in what they are able to accomplish. The most highly competent employees will earn higher wages, but often accomplish the same as two less competent employees. Having one higher paid, highly competent employee is certainly more fiscally efficient than having two lower paid, incompetent employees.

Second, invest in training, cross training, and educating your staff, so that they are able to maximize their full potential. Qualified personnel can and want to work at peak performance, and are excited about learning as well as being challenged.

Third, invest in leadership training for yourself. As an effective leader, you will be able to create a great work environment for your staff. Truly excellent staff members value an exceptional work environment as much as monetary compensation.

Where do you start?
The most essential place to start, at any stage of practice, is a practice valuation that includes a true cash flow analysis of your practice. Every practice owner should have a current practice valuation and it should be updated annually. Armed with this essential information, we can help you evaluate what changes would best be made to increase the profit of your practice to its peak potential. Your local ADS Florida transition specialist is experienced at performing practice valuations, and will personally work with you in accomplishing this. Contact us today at 800.262.4119 or at inforequest@adsflorida.com.